PBOC’s Zhou Says Holiday Cash Removed, Securities Times Reports

March 1 (Bloomberg) -- People’s Bank of China Governor Zhou
Xiaochuan said the central bank drained cash from the financial
system after last month’s Lunar New Year holiday to remove funds
injected before the festival, the Securities Times reported.

The recent open-market operations “were needed after
Spring Festival to remove some of the liquidity injected before
Spring Festival,” Zhou was quoted as saying at the Friendship
Hotel in Beijing today, according to the newspaper’s website.
The one-paragraph report didn’t give further details.

The monetary authority drained a net 5 billion yuan ($803
million) of capital this week after withdrawing 910 billion yuan
last week, the most since Bloomberg started compiling the data
in 2008. The PBOC sold repurchase contracts for the first time
since June on Feb. 19, taking out funds from banks after they
lent the most money in two years in January.

The actions boosted speculation that the central bank was
tightening monetary policy amid concerns that inflation is
accelerating and real-estate price gains are excessive.

The overnight money-market rate rose 5 basis points today,
increasing for a ninth straight day. The rate completed its
biggest weekly jump in a year, climbing 190 basis points to 4.10
percent in Shanghai, according to a weighted average rate
compiled by the National Interbank Funding Center.

Dariusz Kowalczyk, a Hong Kong-based senior strategist with
Credit Agricole CIB, said in a Feb. 21 note that about a quarter
of the 910 billion yuan drained last week was “aimed at
liquidity tightening” and the reintroduction of repurchase
contracts were a “tightening signal.”

Smooth Liquidity

In contrast, Qu Hongbin, chief China economist at HSBC
Holdings Plc in Hong Kong, said in a Feb. 22 note that the
central bank’s actions were designed to smooth liquidity after
the festival from Feb. 9-15 and to counter reviving capital
inflows, rather than tighten policy.

“Inflation pressures are still manageable, something that
we expect to continue given China’s modest growth recovery in
the coming quarters,” he wrote.

Two manufacturing purchasing managers’ indexes for February
released today declined, a sign the country’s economic recovery
that began in the fourth quarter may be losing steam.